Taxes. Nobody wants to do them, but at the end of the day, everybody and every company are obligated to assess whether they owe taxes.
Most people are uncertain as to how to tax plan in general. For example, 90% of people in this survey did not even know how many tax brackets there are. If you are new to having to do your own taxes, just know that there is help out there for your tax plans.
What do you need to know? What do you need to prepare for your end-of-year taxes?
This is your guide.
Know Your Tax Bracket
As stated above, a lot of people that are attempting to do their taxes do not even know what tax bracket they are in. For federal taxes, here are the tax brackets as of 2022:
- 10% taxes for income of $10,275 or less
- 12% taxes for income between $10,275 and $41,775
- 22% taxes for income between $41,775 and $89,075
- 24% taxes for income between $89,075 and $170,050
- 32% taxes for income between $170,050 and $215,950
- 35% taxes for income between $215,950 and $539,900
- 37% taxes for income over $539,900
These are all of the tax brackets for people that are filing as single individuals. If you are filing as someone that is part of a married couple filing jointly, then you likely have a different bracket than the one listed above.
When it comes to business owners, there are usually additional tax types which obviously increase the complexity of compliance. Examples of this include Self-Employment taxes and Corporate Taxes.
Corporations
In the section above, we listed the tax brackets for sole proprietors, now we move on to other business/corporate categories that your company could fall under. The most common legal structures include Limited Liability Company (LLC), S-Corporation (S-Corp), and C-Corporation (C-Corp).
If you are an S-Corp company, you are required to file Form 2553 to get started. If you are a C-Corp company, you are required to file Form 8832 to get started. Choosing which type of corporation could be a major decision. For example, C-Corporations are advantageous for those that are seeking to get other investors into their company. S-Corporations on the other hand, can also take some of the personal tax burdens off of their owners because of the reduced risk of self-employment taxes
Capital Gains
The next thing that you need to consider is the tax implications that you have on capital gains. This can apply to a sole proprietor or even to assets that a company acquires and then sells off.
For example, let’s say that an amusement park chain owns several amusement parks. They decide to sell one amusement park’s land to a real estate company and get hundreds of millions of dollars for it. In that situation, the gains would be considered Capital Gains and would count as adjusted gross income (AGI) for that company. It would be eligible to be taxed along with items inside the amusement park that they decide to sell off. This can be anything from selling certain rides for scrap, selling parts of rides that they do not need anymore.
All of these transactions would be taxed as income, however capital gains tax rates differ from ordinary tax rates. Additionally, capital gains tax rates depend on the timing of certain sales of assets.
Long-Term Assets
Despite the above, there could be ways around paying taxes on certain assets that you own. This is because if you hang onto certain assets long enough, you may be exempted from having to pay any percentage of taxes on the sale of this.
Let’s look at real estate, for example. Some people acquire properties, fix theme up, and then make a quick profit. If you sell the house in under or over a year, you the applicable capital gains tax rates could differ. Additionally, depending on how much overall income you make, you could end up paying 0% in taxes on this sale if you hang onto the property for more than a year. Look into what your advantages and disadvantages are here.
Tax Credits
Finally, make sure you do your homework on what tax credits you could receive. This can potentially save you thousands of dollars in taxes, and these could be in ways that you had no idea that you could take advantage of.
For example, let’s say you are a self-employed person working from home. Since you work from home, you may figure that you have no actual business expenses, so you do not deduct this from your gross income.
However, the IRS allows you to use whatever percentage of your apartment or house as your office as a business expense. Then, you can use things such as that percentage of the rent, mortgage, and utility bills that you pay.
Get Help With Your Tax Plans
These are some of the biggest things that you need to know when it comes to making your tax plans. It would help if you did the proper research on tax credits that you are eligible for, know your tax bracket or corporation status, and make plans for capital gains.
Do you need help with your business finance? Message us today with your questions.
